Top 7 Questions about Internal and External Consultants You Wanted Answered But Were Hesitant to Ask
Wondering what precisely are the differences between Internal and External consultants? We think there are seven distinctions, so let’s explore them a bit more closely now.
To make this exercise more fun, we chose a Q & A format.
1. How independent are External and Internal Consultants?
The level of Independence varies and affects to a degree the execution of a project. Logically, we can assume that External Consultants have a greater level of freedom and independence.
Internal Consultants are subject to organizational hierarchy, while External consultants operate at arm’s length and give in theory unbiased and independent advice.
However, if internal teams have to take into account key stakeholders that could influence their future career, external consultants have a vested interest in acquiring repeat business. They tend therefore to be very careful with their conclusions and the way they are presented if those present a significant risk for future revenue streams. Independence to stakeholders … yes, to power … maybe.
Consulting agreements are often neglected, even though they are crucial for the success of a project. What are the key steps when negotiating and preparing a consulting agreement?
2. How skills/experience level varies between Internal and External Consultants?
When it comes to skills and experience, there are lots of commonalities between both populations. Internal Consultants are usually experts in their field or have just joined after a consulting career. External Consultants maintain an edge on consultative selling skills and advanced capabilities. Internal Consultants will do the same with the cost performance trade-off on capabilities that have started to commoditize.
A key differentiator relates to intimacy with the company. Even though some external consultants tend to work with companies for years, nothing can replace being actually part of it to apprehend its culture and its core activities. Some projects require a strong intimacy with the company to be able to blend in or to provide an inside out expertise. Internal Consultants are probably the right partners. But sometimes you need to feed the project with rich experience from other companies in the same field or on the same capability. It will then be complicated to top the external experts.
Top consulting firms live and die by their ability to produce fresh thought leadership. They need to be at the edge of their discipline to remain relevant. Consultants need to write white papers and research materials to climb the ranks of their firm. It is not as material for the internal consulting roles as they are like other employees focused on projects and execution.
3. Are Costs for the Services different?
Usually, Internal Consulting Groups are seen as a cost center. They often chargeback for their time just like an engineering team would charge to a program or an industrial project. This practice allows a healthy check and balance with the internal customers. Note that small number of companies, like Deutsche Post or Thales, have started to position internal consulting groups as an internal business unit with a P&L. Their Consulting Groups are even offering their services outside the company as well.
External consulting costs are usually paid in full by the unit benefiting from the services. It might create at times a lack of visibility on the actual consolidated consulting fees paid by a given firm. Profitability from consulting firms comes from the level of utilization of their teams, whereas for internal consulting, it comes from the impact generated down the line.
4. How can Clients find the best talent?
It’s sometimes hard for internal Consulting Group to acquire and retain the best talent. The level of compensation in the Consulting Industry is exceptionally high. It is complicated, if not impossible, for Industrial Companies to keep up. Hiring a senior consultant or a partner, in particular, can very soon become unattainable for a Company. They have to use much imagination to attract the right talent and give them opportunities to grow. Besides, once a consultant has joined a company with a high compensation package, it can be difficult to find the next position within the company.
A route less traveled is to embed a few years in the internal consulting group as part of the career path for high potential executives. GE is incubating Crotonville graduates as black belt project leaders before advancing further in their career. This solution allows them to solve the compensation gap issue and increase the intimacy level with the company.
One of the most striking differences between top consulting firms and internal consulting groups is the homogeneity of talent. The pool of talent in external consulting firms is extremely robust, sometimes at the expense of diversity. We cannot deny the impact on the quality of talent that is available in a majority of the consulting firms. An internal group will show more heterogeneous profiles. Blame critical mass and internal HR policy reasons. Besides, Global consulting firms can provide instant access to a worldwide pool of talent when an internal consulting group is often centralized at the headquarter.
Last, but not least, the tenure of the consultants is usually not the same. Joining an internal consulting group is considered a step in the career of an employee. Companies cannot afford to have permanent internal consulting structures with unlimited size. The opportunities for consultants to develop from within are also limited. You will rarely find an internal consulting entity with the pyramidal structure typical of the established firms. A result, the managers are much more involved in the execution of projects. But they also have a limited bandwidth to address multiple projects. Succession too can become an issue as successors will be challenging to develop in this set-up
5. How Client-Consultants relationships differ for Internal and External Consultants?
It is lonely at the top. CEOs and Top Executives cannot always bounce sensitive ideas with their executive teams. They often appreciate having senior trusted advisors that are not tied to the company. On the political added value, external consultants definitely trump the internal ones.
However, when it comes to connecting with the teams and facilitating change, the internal route is often a smoother one. It is particularly true for implementing projects that do not require a strong connection to the top.
When the impact is somehow linked to the influence, a consultant has in the organization the connection to the top management or the board will be a must, and the external teams often have a stronger relationship with this group.
6. How Consultants’ individual interests and behaviors intersect with Clients’ Interests?
External consultants do their best and have the best interest of the Clients in mind. Some consultants even decide to buy some shares of the company they are supporting or to be paid in equity. Risk of conflict of interest aside, it is a good illustration of their commitment. However, consultants are making a living by selling projects and keeping the activities running. They keep their eyes on the ball during any project: delivering satisfactory results is a prerequisite. They also always have in mind to sell the next phase of the project or to identify an adjacency that could lead to another project.
Internal consultants are more detached from this objective to sell internally another project. They are also more focused on delivering an impact since they obviously have skin in the game. That being said, no situation is perfect. They will instead focus their attention on securing their next step in the company and above all not jeopardizing it. This objective in itself might partially limit the full execution of the projects.
7. How Implementation Projects, and Support Level Expected, differs with Internal and External Consultants?
One of the fundamental differences in the scope of activities of internal consultants is the proportion of implementation projects. External consultants are spending most of their time on the front end, analysis and the recommendations. But Internal consultants are usually supporting projects end-to-end.
The explanation for this difference is simple: costs. External consultants are generally quite expensive from a daily rate standpoint. Companies tend to focus the consulting activities on tasks they cannot deliver themselves. It creates an opportunity for internal consultants or low-cost implementation consultants. Mc Kinsey recently invested in a sub-brand in Europe to support implementation work that would not be affordable at the McKinsey premium.
Working with consultants able to follow through on the projects is highly appreciated. Everyone can learn during the implementation and avoid repeating the same mistakes. It is also very welcomed by the internal consultants themselves as they can see the results of their actions.
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